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Dynamic Screening with Verifiable Bankruptcy

Author

Listed:
  • Krähmer, Daniel

    (University of Bonn)

  • Strausz, Roland

    (HU Berlin)

Abstract
We consider a dynamic screening model where the agent may go bankrupt due to, for example, cash constraints. We model bankruptcy as a verifiable event that occurs whenever the agent makes a per period loss. This leads to less stringent truth-telling constraints than those considered in the existing literature. We show that the weaker constraints do not af- fect optimal contracting in private values settings but may do so with interdependent values. Moreover, we develop a novel method to study private values settings with continuous types and identify a new regularity condition that ensures that the optimal contract is deterministic.

Suggested Citation

  • Krähmer, Daniel & Strausz, Roland, 2022. "Dynamic Screening with Verifiable Bankruptcy," Rationality and Competition Discussion Paper Series 348, CRC TRR 190 Rationality and Competition.
    • Handle: RePEc:rco:dpaper:348
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    dynamic screening; bankruptcy; verifiability; mean preserving spread;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement

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